We have constructed novel chimeric receptors, GAL-ER and GAL-GR, consisting of the DNA-binding domain of the yeast transcription factor GAL4 joined to the C-terminal region containing the hormone-binding domain of either the human estrogen (hER) or human glucocorticoid (hGR) receptor. Stimulation of transcription by GAL-ER and GAL-GR from GAL4-responsive reporter genes was hormone dependent, and the activation function has been localized to the hER or hGR region. Both chimeric receptors recognized GAL4-responsive elements only in the presence of hormone or anti-hormone, yet solely the hormone was capable of stimulating transcription. These and additional results suggest that the hormone plays at least a dual role. First, the hormone, or anti-hormone, is responsible for receptor "transformation" allowing the recognition of responsive DNA elements. Second, the hormone, but not the anti-hormone, can induce a transcription activation function present in the region that contains the hormone-binding domain.